14 July 2017

Dubai: Owning the Earth

Within the basket of real estate investments, land has out-performed built-up units over a prolonged period of time. Land has yielded higher returns in cities with scarcity and abundance of space. For example, in New York, where land is scarce, returns have been higher by a factor of 3 over the last 41 years, even after factoring in rental income. In Los Angeles (topographically speaking, the closest by way of comparison to Dubai), land prices have outperformed by 2x relative to built-up property.

Transactional volumes have been a leading indicator of price direction as illustrated in our previous research report entitled, “Dubai: A Cabinet of Real Estate Curiosities”. A closer look into land prices and transactional reveals the correlation strength increases substantially with a lag. A two-dimensional analysis reveals that when there is no lag the correlation is neutral, but however with a 6 month lag it increases to +0.45.

Given the fact that construction activity is on an upswing that is expected to last through till 2020, we opine that land prices will continue to move inexorably higher. Whilst there is unlikely to be a one for one effect on end user prices (following historical trends), it is inevitable that these prices will also witness an upward trajectory.

In the meantime, investors would do well to capitalize on and price moves through proxy means by investing in capital markets in companies that have large land banks.

To read the full report click here